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5 lessons as Wall Street's bull market turns 4

Despite the stock market's run at all-time highs and a March 9 party to celebrate the bull's 4th birthday, Wall Street's euphoria is tempered by the fact the Nasdaq is still down 37% 13 years after its peak.

NEW YORK — When it comes to Wall Street anniversaries, some are celebratory, pop-the-Champagne-type moments. March 9 fits the bill: it marks the 4th birthday of the bull market that was born that day in 2009 when stocks finally stopped going down, ending the worst plunge since the Great Depression.

But some market-related anniversaries are simply downers. They are reminders of better times, bursting bubbles and fortunes lost. March 10 is as good an example as any. It marks 13 years since the once-highflying Nasdaq composite peaked north of 5000 on that historic and euphoric day before crashing in 2000 when the tech bubble burst.

For those in a partying mood, March 9 is a day to cheer a market advance that has put $11 trillion in paper wealth back in the pockets of investors who dared to stay invested, Wilshire Associates says. For cynical investors who still feel burned by last decade's tech-stock rout and the ensuing plunge during the more recent financial crisis, March 10 is a painful reminder that the Nasdaq is still 37% below its record high, and the Standard & Poor's 500-stock index is simply back to levels it was at in March 2000.

Depending on one's entry point or point of view, the stock market is viewed as either dead money for more than a decade, or a wealth-building machine that has helped more than double their money in a short four-year span.

So, are next weekend's anniversaries and birthdays a time for investors to celebrate or lick their wounds?

"It depends on whether you have been in or out of the stock market," says Joe Quinlan, chief market strategist at U.S. Trust. "Particularly in the past four years, (with the stock market rising 124%), whether you are feeling good or bad depends on whether you were invested or not invested."

For many investors there is cause for celebration, and a good reason to toast the market and marvel at its resilience.

"Absolutely," says Andres Garcia-Amaya, global market strategist at J.P. Morgan Funds. "Back in early 2009 the world felt like it was coming to an end."

It didn't, of course.

Investors should be thankful for that, says Ron Sloan, chief investment officer of Invesco's U.S. Core Equity team. Focusing on the past, he says, is also counterproductive, Sloan argues, especially the fallow period since 2000 — dubbed "The Lost Decade" and often compared with Japan's zombie economy and chronically depressed stock market since its real estate and stock bubble burst in 1989.

"A lot of skeptics will say, 'We haven't made any money since 2000,'" Sloan says. "But that's not the thing to focus on." What investors should focus on, he stresses, is the future. The stock market's 13 years of sideways action, shrinking price-to-earnings ratios and mass cash exodus from stock funds is akin to putting a "down payment" on a brighter future.

"The long downturn was a generational move," Sloan says. "It's almost over. That is the real story. I think the next 20 years will be closer to (the great bull market of) 1982-2000 rather than a replay of 2000-2013."

Investors, many bulls say, should focus on the positives. The market, for example, which now trades at a sub-15 P-E, is selling at half of what the P-E ratio was at the peak in 2000. (A price-earnings ratio, the price of a company's stock divided by its earnings per share, is a gauge of how expensive stocks are.) Irrational exuberance, which often kills bull markets, is not present currently. Nor, given the record-low yields on U.S. government bonds and cash, do stocks have much real competition from other assets.

But it would be disingenuous to say investors feel as good about the stock market four years into the current bull market than they did when the Dow Jones industrial average first crossed the 10,000 barrier in March 1999 or when the Nasdaq composite soared an eye-popping 60% in the four-month span leading up to its March 10, 2000, peak of 5048.62, argues Burt White, chief investment officer at LPL Financial.

"To think that most investors have benefited since the bull market began in 2009 and doubled their money is not right," White says. "A lot of people were out of the market and not invested, and missed the turn. And the market isn't even back to where it was in 2000. While it's great to celebrate that we sort of fell down and got back up, people realize that falling down (financially) is much more harmful."

Says Walt Zimmermann, technical analyst at United-ICAP: "It's been almost 15 years of pain."

The pain, of course, has prompted investors to flee the stock market, lose faith in Wall Street and even dial down their exposure to the stock market.

"The perception is that stocks are for losers," says Marty Leclerc, chief investment officer at Barrack Yard Advisors.

After loading up on stocks from the late 1990s through the fall of 2007, retail investors fled to the safety of bonds. Similarly, professional money managers' willingness to risk clients' money in stocks has been in steady decline. Confidence in stocks hit an all-time low this past November, eclipsing the level of hatred of stocks found at the height of the financial crisis in October 2008, according to State Street's Investor Confidence Index.

"The (move out of stocks) over the past 2½ years has been pretty pronounced," says Paul O'Connell, co-creator of the State Street index, which measures portfolio managers' exposure to stocks based on an analysis of actual trades.

But if there's one benefit of personal finance-related anniversaries, Zimmermann says, it is the opportunity to look back and learn from past investment mistakes.

"It forces investors to pay extra attention to what is going on in the market," he says. "And that is useful."

Workers watch the market on the floor of the New York Stock Exchange on Friday.(Photo: Richard Drew, AP)

Here are five lessons to take away from Wall Street's past milestones.

1. BEWARE MARKET MANIAS. In 2000, investors thought tech stocks would never stop going up. They were wrong. In 2007, home buyers thought home prices could never go down. They were also wrong. At the stock market bottom in March 2009, investors thought stocks would never stop falling. They, too, were wrong.

The takeaway, says LPL's White, is to do just the opposite of what the investing herd is doing at sentiment extremes.

"Speculative manias are part of our DNA," White says. "Investors are fascinated with all-time highs. Stock market anniversaries highlight what happens when bubbles burst and when there is a suspension of reality and investors get either too euphoric or too depressed. They are not meant to be celebrated, but instead should be a time for investors to reflect on investing mistakes they tend to make over and over again."

2. USE HISTORY AS GUIDE. The 13th anniversary of the Nasdaq top is "significant," Leclerc says. "Dates (that mark anniversaries) are so important. They are not just data points."

Leclerc points out that the stock market tends to trade in long, multiyear patterns in which stocks either are in an uptrend or in a downtrend, as they have been since 2000. History says these so-called "secular," or long-term, bear markets, last anywhere from 13 to 16 years, according to Ned Davis Research. Leclerc says the current downtrend may be finally nearing an end and that if the market breaks out to new highs it could signal the start of a new secular bull market similar to the 18-year bull that ended in 2000.

"Previous bull market highs represent glass ceilings," Leclerc says. If a good bull market is to become a great bull market, the market must eventually "smash through" the old high, he says.

"We are in treacherous territory," adds Leclerc. The reason: He says the market will either break out for good to the upside and jump 30% higher like other mega-long bulls. Or stocks will top out like they did in 2007 just a few points above their prior peak in 2000 and risk falling 20% to 30%.

3. MIXED RESULTS FOR BUY-AND-HOLD STRATEGY. The S&P 500 hit a bull market high of 1527.46 in March 2000. It closed at 1518.20 Friday. The point: From a pure price perspective, the benchmark index has lost money over the past 13 years. That lousy performance discredits buy-and-hold investing, says Zimmermann.

"This clearly is not a buy-and-hold market," he says. Instead, he argues, it's a market geared more to professionals who are better equipped to know when to buy low and sell high. "It's a terrible market for average investors," Zimmermann adds. "We all tend to buy a fund and forget about it and trust the experts. But that has been a terrible strategy for 15 years."

Zimmermann says chart patterns he analyzes suggest a market top is nearing.

4. DON'T INVEST LOOKING THROUGH THE REARVIEW MIRROR. Markets move on information about the future, not the past, says Tim Hopper, chief economist at TIAA-CREF. Investors should not get paralyzed by what happened in the past, or think just because stocks have had a good run that the good times have to end suddenly, he says.

"As an investor you should look at where you are today," Hopper says. "What are the market signals telling you now? It doesn't matter if the Dow is trading close to a new high or just made a new high."

Hopper says stock investors should focus now on improving fundamentals and business conditions. The economy continues to grow, albeit slowly, but will gain even more strength later in 2013 and next year. The trend in housing and the job market also points up. And Corporate America is doing well. "U.S. companies have strong balance sheets; they've got lots of cash, and they are seeing increasing demand for their products, which will lead to an increase in earnings. The trend now is still up."

5. CRISES EVENTUALLY END. So says, David Bianco, chief U.S. equity strategist at Deutsche Bank. "What we have learned since March 2009 is that crises don't last forever," he says. "No matter how dark those days were in late 2008 and early 2009, it was the wrong time to sell."

Adds Carmine Grigoli, the chief investment strategist at Mizuho Securities USA who thinks stocks will rise another 10% by year's end: "There's a great deal of crisis fatigue right now. The further we get from the epicenter of the financial crisis the more sentiment will improve."

"The anniversary of the bear market low and start of the bull market is a story of recovery, a story of economic resilience, a story of not abandoning the stock market because it can and will come back," says Mark Luschini, chief investment strategist at Janney Montgomery Scott.